Capital Gains Account Scheme: How Property Sellers Park a Gain Before the Return Is Due
A seller who plans to put the profit from a property sale into another home often runs out of time before the tax return is due. The Capital Gains Account Scheme is the bank deposit that keeps the tax exemption alive in that gap. This guide explains who needs the account, the deposit deadline, the two account types, and the rules for withdrawing the money and closing the account.
Why the Account Exists
The exemptions for buying or building a house give a seller two to three years to complete the new home. The tax return for the year of sale falls due much earlier. A flat in Bangalore may sell within weeks, while the replacement home takes months to choose and longer to build.
The scheme, notified by the central government in 1988, bridges the two dates. Money placed in the account before the return is due is treated as set aside for the new house. The exemption is claimed in that year's return, and the deposit is drawn down later to pay for the property.
Who Needs the Account
Two exemptions send most property sellers to the scheme. Section 54 covers the long-term gain on a residential house, and section 54F covers the gain on a plot or another long-term asset. Since 1 April 2026 they are sections 82 and 86 of the Income-tax Act, 2025, though the old numbers remain in everyday use.
The amount to deposit differs between the two. Under section 54 only the gain has to go into the new house, so the deposit is the part of the gain still unspent. Under section 54F the whole net sale price counts, so the unspent part of that price is deposited to keep the full exemption.
A seller who has already paid for the new home in full before filing the return has nothing to deposit. The same holds for a seller who chooses capital gains bonds, which follow their own six-month rule.
The Deposit Deadline
The deposit must be made before the return is filed, and no later than the due date for filing it. For individuals without business income that date is 31 July after the financial year ends, unless the government extends it. A sale registered during 2026-27 therefore has a deposit deadline of 31 July 2027.
The longer period for buying or building does not move this date. A seller who files a belated return and deposits the money afterwards risks losing the exemption. The date of deposit is the day the bank receives the cheque, draft or electronic payment along with the application.
Account A and Account B
The scheme has two deposit types, and a seller may use either or both. Their main features are compared below.
| Feature | Account A | Account B |
|---|---|---|
| Form | Savings deposit | Term deposit, cumulative or non-cumulative |
| Withdrawals | Allowed as bills fall due, on an application | Only after the deposit is moved to Account A |
| Interest | The bank's savings rate | The bank's term deposit rate |
| Suits | Stage payments to a builder or contractor | Money that will stay untouched for some months |
A term deposit converted to Account A before maturity earns a reduced rate, with a 1% penalty for the early break. The interest on both accounts is taxable income, and the bank deducts tax at source on it. Many sellers keep the amount needed in the next few months in Account A and the balance in Account B.
Opening the Account
The account is opened with Form A at a bank branch authorised for the scheme. The bank asks for the PAN, identity and address proof, and a copy of the sale deed. A branch near the seller is the practical choice, since withdrawals and closure are handled at the branch.
An amendment notified on 19 November 2025 widened the choice of banks and payment modes. The main changes are listed below.
- Any banking company notified by the central government may now accept deposits, beyond the public sector banks
- Deposits may be paid by net banking, UPI, IMPS, NEFT, RTGS or card, as well as by cheque or draft
- An electronic statement of account may be issued in place of a passbook
- Closure applications move online from 1 April 2027, signed digitally or with an electronic verification code
The exemption belongs to each taxpayer separately. Co-owners who sell together open one account each and deposit their own share of the gain.
Taking Money Out
Withdrawals are made from Account A on Form C, and only for buying or building the house. From the second withdrawal onwards, Form D is filed as well. It records how the previous withdrawal was spent.
A withdrawal above Rs. 25,000 is paid by a crossed demand draft in the name of the person receiving the payment, such as the builder or the seller of the new home. Money withdrawn has to be used within 60 days. Any part left over goes back into Account A at once.
The balance cannot be used for anything else. It cannot be pledged or offered as security for a loan, and banks issue no cheque book or debit card on the account.
Closing the Account
The account is closed once the house is paid for, or when the plan to buy is given up. Closure needs an application in Form G with the written approval of the seller's income tax assessing officer. Where the depositor has died, the nominee or legal heir applies in Form H.
The approval step takes time, so it helps to apply soon after the last payment for the house. The assessing officer's letter also settles how much of the deposit was used for the new home.
If the Money Is Not Used
A deposit postpones the tax and cancels it only when the house is bought or built in time. The purchase has to be completed within two years of the sale, or the construction within three years. Money still unused is taxed as a capital gain of the year in which three years from the sale end.
Under section 54F the taxable amount is worked out in proportion to the unused share of the sale price. A seller who is unsure about buying again may find it simpler to pay the tax or invest in bonds. The money in the account stays locked to one purpose for the whole period.
Steps for a Bangalore Seller
The order of steps matters more than the paperwork. A seller planning to reinvest should work through the list below soon after the sale deed is registered.
- Work out the long-term gain and confirm which exemption applies to the property sold
- Note the return due date for the year of sale and treat it as the last day for the deposit
- Add up what has already been paid towards the new home, and deposit the remainder
- Split the deposit between Account A and Account B to match the payment schedule
- Keep the builder's demand letters, receipts and each Form D for the tax records
- Mark the two-year and three-year dates, and apply for closure once the house is paid for
Sellers living abroad follow the same rules, and NRI sellers should also plan for the tax the buyer deducts from the sale price. A chartered accountant's calculation before the deposit is worth the fee, since the amount and the date cannot be corrected later.